The Colossal Price Tag of Downtime

The Colossal Price Tag of Downtime

A decade or two ago, having a system outage was largely just an inconvenience for most companies. Today’s scenario is far different. Even an hour of downtime has a ripple effect that may take days or weeks to fix. The most understandable measure of downtime is to translate it into currency. After considering the vast expense resulting from an outage, it is easy to see why business continuity services are so important.

Revenue Costs

The most obvious price tag of downtime is revenue lost when components of the network go down. Consider the various revenue streams, including all departments generating income. If phones and website are used for sales and are interrupted, then 100% of revenue is lost for the duration of the outage. Multiply those hours by the average amount normally earned per hour to determine the revenue cost of the incident.

For the sake of easy illustration, a short outage of five hours at a facility averaging $1,000 per hour in sales would cost around $5,000 in lost revenue. If three departments typically bring in a similar level of sales, the cost rises to $15,000 for a partial day of lost operations.

Repair and Recovery

The expenses of remediating an outage are highly variable depending on the problem’s source. Anything from faulty cabling to a bad switch or malfunctioning server could be the culprit. Replacement equipment adds up quickly and repair technicians have a high price tag, especially for emergency appointments. Data restoration may require additional skilled IT personnel, some working at overtime rates.

Labor and Productivity

While the system was down for five hours, what were workers doing? Sales agents, order fulfillment personnel, customer service reps, and others may still have been paid for being completely unproductive (through no fault of their own).

To calculate this figure, consider how much of the employees’ jobs were reliant on the systems that were down. For representatives whose sole purpose is to sell via the downed channel, the cost may be 100% of their hourly rate times the number of representatives in question. For those who split their time between sales and other tasks, the figure may be more like 50% of their wages. Using the same variable, it would cost $2,500 in labor and productivity for 50 sales agents (100% dedicated to sales) paid $10 per hour for the five hour downtime.

Other Costs

When news of the outage or downtime begins to travel, the standing of the company may experience a decline depending upon how effectively the situation is handled. Rapid recovery could cause mild annoyance to customers but have manageable effects. A more extended outage can have disastrous impact on reputation, resulting in lost customers, reduced future revenues, and diminished market share. While it’s not as easy to predict these costs accurately, even a 1% loss of revenue annually following an incident is substantial. At $1M annual revenue, this loss would be $10,000.

In the examples used here, a mere five-hour downtime incident would cost this company $15k in lost revenue, $2,500 in sales labor, $10k in future business, and recovery fees of at least $1,000 (totaling $28,500) . When compared to the effort and expense of good business continuity planning, downtime is far more damaging and unaffordable.

Recover more quickly and prevent business failure that can easily follow a downtime incident by partnering with a quality business continuity provider. For more information on business continuity programs, contact Copper State today.